Weekend update

REVIEW

This volatile week started at SPX 2486. After a gap up opening Monday and rally to SPX 2509, the market went into chop mode ahead of the NY Day holiday. A gap down open started the action on Wednesday. After hitting SPX 2467 early the market rallied to SPX 2519. Thursday had another gap down opening. The market quickly dropped to SPX 2448, rallied to 2488, then dropped to 2444 just before the close. Friday a totally different story. After a gap up opening to SPX 2482 the market just kept on rising, hitting SPX 2538 before closing at SPX 2532. For the week the SPX/DOW gained 1.75%, and the NDX/NAZ gained 2.25%. Economic reports for the week were light and mixed. On the downtick: ISM manufacturing, plus both jobless claims and the unemployment rate rose. On the uptick: the ADP, monthly payrolls, and auto sales. Next week’s reports will be highlighted by the FOMC minutes, the CPI, and ISM services. Best to your week!

LONG TERM: downtrend probable

After the worse December since the year 1931 many of the market pundits capitulated and turned bearish. The SPX lost 9.2% on the month. It is probably best to describe 2018 as a bull sandwich: two three month corrections, with a six month uptrend in the middle. Net loss YoY 6.2%. Economically, the ECRI was making lower lows this week.

Last weekend we noted that just when many were turning bearish several foreign markets looked like they were in the last bear market downtrends: China, Germany, Hong Kong, Singapore, S. Korea, and Spain. This week China made a new bear market low, Hong Kong confirmed its last downtrend, S. Korea confirmed its last downtrend and made a new bear market low. S. Korea looks like it could be bottoming now.

An emerging market that is enjoying the fruits of its economic and political recovery is going mostly unnoticed. It just made new bull market highs in the first three days of this new year. The market: Brazil. After a market crash, along with nearly every other market, in 2008, the BVSP rose in a P1 bull market until 2010. Then economic/political trouble set in and a six year P2 bear market followed until the worldwide low in 2016. It has been rising in a P3 every since. Short term charts are on page 5 of the stock charts link below.

Nothing has changed on the long term count or the weekly chart. You can read last weekends update for more detail.

MEDIUM TERM: downtrend

Made some notes on the daily chart to prove a point. For those that think the POTUS and FED cannot move markets, think again. Note the four instances in December when the POTUS or FED did something market noteworthy. December 4th, Trumps tariff man morning tweet. The market was at SPX 2786. By December 26th the market had dropped to SPX 2347: -15.8%. Along the way Powell stated that rates and QT were on auto pilot during the rate hike pressor on December 19th. If you recall the SPX dropped 100 points between the time the FED raised rates and he finished his pressor one hour later. On December 24th the Presidents Working Group convened. Then on Christmas day, December 25th, Trump tweeted stocks are cheap. The SPX had closed at 2351 on the 24th, and has since rallied 8.0% at Friday’s high. Clearly Powell and Trump can move markets.

With the best surge in market breadth since the downtrend began it is possible Int. A ended at SPX 2347 and Int. B is currently underway. A 38.2% to 61.8% retracement would be normal for a B wave of this degree: SPX 2574 to 2714. It’s a large range but nothing this volatile market couldn’t handle in a couple of days.

We also see the possibility, as noted in the DOW charts, that Int. C is still underway. This was detailed in last weekends update. Either way we should be seeing a retest of the December lows before this bear market ends.

SHORT TERM

The pattern for this downtrend remains the same. An abc down to late October, a November B wave, then another abc down to late December. While the pattern has been unchanged, the wave degree has been a bit difficult to determine. Ideally, as noted last week, a drop to SPX 2310 would ideally fit the SPX and DOW.

Short term support is at the 2525 and 2479 pivots, with resistance at the 2575 and 2594 pivots. Short term momentum ended the week overbought. Best to your trading in the NY.

FOREIGN MARKETS

Asian markets were mostly lower and lost 0.8%.

European markets were all higher and gained 2.1%.

The DJ World index gained 1.5%, and the NYSE gained 2.2%.

COMMODITIES

Bonds continue to uptrend and gained 0.6%.

Crude appears to be trying to get an uptrend going and gained 5.8%.

Gold remains in an uptrend and gained 0.2%.

The USD is in a downtrend and lost 0.2%.

NEXT WEEK

Monday: ISM services and factory orders at 10am. Tuesday: consumer credit. Wednesday: the FOMC minutes. Thursday: weekly jobless claims and wholesale inventories. Friday: the CPI and the Budget deficit. Best to your week!

CHARTS: https://stockcharts.com/public/1269446/tenpp